On March 10, the U.S. Chamber Institute for Legal Reform (ILR) and Lawyers for Civil Justice (LCJ) submitted a joint filing to the Federal Civil Rules Advisory Committee proposing specific rule language for a uniform federal disclosure requirement for third-party litigation funding (TPLF). The proposal would amend Rule 26(a)(1)(A) of the Federal Rules of Civil Procedure to require parties to disclose, at the outset of a case, the identity of any nonparty funder with a financial interest in the litigation—and the agreements that define that interest.
This is a commonsense step toward transparency in our courts, and it’s long overdue.
The Problem: A Patchwork of Inconsistency
Third-party litigation funding—where outside investors finance lawsuits in exchange for a share of any recovery—has become increasingly utilized as a means for investors to line their pockets at the expense of an efficient and transparent judicial system. Despite this, there is currently no uniform federal rule governing whether, when, or how the existence of these arrangements must be disclosed to courts and opposing parties. This results in a massive disparity between jurisdictions that result in different treatment by the courts based on geography, and variety in outcomes —a textbook “rules problem” that only a uniform federal rule can solve.
What the Proposal Would Do
The ILR-LCJ proposal would add a new subsection to Rule 26(a)(1)(A)—the provision governing initial disclosures that parties must make at the start of every federal civil case. Under the proposed rule, parties would be required to identify any nonparty individual or entity that is providing funding for the litigation and has a financial interest in its outcome, and to produce the underlying agreements for inspection.
The Proposed Rule is modeled on existing local rules like the Northern District of California’s Local Rule 3-15, preserves judicial discretion, and protects privileged material.
Why Disclosure Matters
Courts and litigants need to know who is actually driving a lawsuit. TPLF contracts can give outside funders significant control over litigation strategy and settlement decisions—sometimes including the right to accept or reject settlement offers, replace counsel, or even prohibit the plaintiff from communicating with the opposing party. When these arrangements remain hidden, the consequences are serious: litigation can continue at a funder’s direction even when the actual parties want to settle, conflicts of interest can go undetected, and confidentiality orders can be violated by contract provisions requiring plaintiffs to share all litigation documents with their funders.
What Opponents of the Rule Are Really Asking For
To be clear, opponents of the proposed rule are asking the Advisory Committee not for uniformity, clarity, and predictability in procedural rules, but rather for a special favor: to give their industry a unique pass as to the basic transparency required of everyone else who has an economic interest in or influence over proceedings in the federal courts. And they assert that, without this special treatment, those benefits would evaporate, as if revealing the content of a TPLF contract would render the arrangement impossible – which if it did, raises the question: what are they trying to hide?
Congressional and State-Level Efforts on TPLF Transparency
Congress and state legislatures are also grappling with the challenges posed by undisclosed litigation funding. At the federal level, legislation such as the Litigation Funding Transparency Act has been introduced, designed to require disclosure of TPLF, as well as the underlying agreements for such funding in federal class actions and federal multi-district litigation proceedings. In addition, the legislation would prohibit litigation funders in class actions and MDLs from being able to control decision-making or the overall activities in the litigation. Other federal bills such as the Litigation Transparency Act would require disclosure of TPLF in all federal civil litigation. The Protecting Our Courts from Foreign Manipulation Act would require disclosure of foreign-sourced TPLF in addition to prohibiting foreign governments from investing in U.S. litigation.
Meanwhile, states are implementing critical reforms. Oklahoma, Georgia, and Utah have enacted laws to increase TPLF transparency, with other states like Michigan and Tennessee considering similar measures. These efforts aim to bring much-needed reform to state courts, ensuring that all parties involved in litigation are known.
The Path Forward
The need for a uniform rule has never been clearer. The proliferation of local rules and standing orders across the federal judiciary demonstrates that judges recognize the problem. A single, clear amendment to Rule 26(a)(1)(A) would bring order to the current patchwork and give courts and parties the information they need from the start of every case. ILR and LCJ urge the Advisory Committee to adopt this proposal and bring litigation funding disclosure in line with the principles that have governed federal civil practice for more than half a century.
